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Health-care costs: Will they stay or will they grow?

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Cost growth for health care started doing something weird in 2010: It began slowing down, by a lot. Health-care costs have grown more slowly in the past two years than they have at any other point in the past five decades.

The event incited a debate among health policy wonks over whether the slowdown was permanent (because of fundamental changes in how we pay for health care) or temporary (a byproduct of Americans cutting back on care during the recession).

Medicare’s independent actuaries weighed in Tuesday with new health spending projections, which probably won’t settle the matter at all: They’re finding that the slowdown in cost increases may partly reflect both trends. They do expect health-care spending to tick back up as the economy recovers from the recession. At the same time, they project slower cost growth than they have in previous reports.

“We’re projecting that, for the next three years, health-care spending is going to stay near its historic lows,” says Sean Keehan, a senior economist with the Office of the Medicare Actuary. “We think this is due to the recession, but not just that. We think consumers are being more cautious about how much health care they use, too.”

Keehan and his team think the recession has almost certainly played a role in restraining cost growth. If income rebounds and hiring gets a boost, with more people able to afford health insurance, they project that “private health insurance spending [will] grow an average of 5.9 percent between 2015 and 2021.” There’s also a demographic story here: Medicare costs are expected to speed up as more baby boomers age into the entitlement program.

Dig deeper into the numbers, though, and you see that it’s not just about the recession. Harvard University’s David Cutler points out that the Medicare actuaries keep lowering their estimates for how much health care will cost us in the future.

In last year’s projections, for example, the actuaries estimated that the United States would spend $3.22 trillion on health care in 2014. This year, that number dropped by over $100 billion to $3.1 trillion.. Both of those estimates, it’s worth noting, include the impact of the Affordable Care Act. The Medicare actuaries also have a tendency to overestimate health-care cost growth (usually by about 0.4 percent), meaning that spending might be rising even more slowly than these numbers suggest.

“The forecasts keep going down,” says Cutler. “It looks like it’s continuing a pattern where, each year, forecasts of future cost increases keep getting lower and lower.”

Part of that has to do with changes to the baseline: The actuaries initially had projected that the economy would recover from the recession faster than it actually has, which would encourage Americans to spend more on their health care.

“The projections have gone down, and the main reason for that is that economic growth has been lower than we’d initially thought,” says Medicare’s Keehan.

Keehan notes, however, that there are other changes that have factored into the lower their projected spending -- ones that could have a more permanent effect on cost growth. Drug companies haven’t released any blockbuster pharmaceuticals lately, and, as their biggest sellers have gone generic, spending there has dropped. Hospitals are taking some steps to become more efficient. For the first time in a decade, the number of hospital-acquired infections is declining.

And even before the recession, health insurance plans began sharing more costs, meaning that subscribers picked up a bigger chunk of the bill and became more parsimonious about seeking care.

“That seems to be a permanent trend,” says Cutler. “It’s not clear that the cost-sharing part was caused by the recession, since it was going up before. And now you have people thinking twice about what health care they actually need.”

Taken together, those changes aren’t bringing health care cost growth down to the level of the rest of the economy--but they might be bringing health care cost growth closer to than it has been in years.

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